Catalog Request

financial preparedness

On August 31, Hanjin Shipping declared bankruptcy. The South Korean company’s declaration left $14 billion worth of cargo and more than half a million containers stranded offshore, as ports fearful of going unpaid refused to allow the company’s ships to dock or unload.

So why should we care?

First, Hanjin Shipping transports 8 percent of manufactured goods that enter into the United States. Look around. Imagine if one item of every 12 you see suddenly became unavailable. It adds up fast, doesn’t it? Companies like Wal-Mart and Target are twiddling their thumbs while they wait for Hanjin to work out how it’s going to pay to get everything unloaded. Even if they don’t have anything on the ships in limbo, they still have to try to find other ways to ship their goods. Samsung, for example, is considering sending smartphones and devices in cargo planes to accommodate its U.S. market. That’s going to cost extra.

And this time of year, as retailers order more goods for holidays, there’s not a lot of extra shipping space to go around. Already, freight prices for Asia-U.S. cargo have jumped 40 percent, according to The Wall Street Journal. Honestly, what are the odds retailers won’t pass any of these costs on to consumers?

Second, for the moment, fewer manufactured goods are reaching the U.S. Though no one is predicting shortages, and every financial planner predicts the bankruptcy mess will be sorted out by the end of the year, it means supply could be temporarily reduced, again driving up prices right around the holidays.

“This is not impacting store shelves now,” Nate Herman, a senior vice president for the American Apparel & Footwear Association, told The Wall Street Journal. “It will impact store shelves if the situation isn’t resolved.”

Leaking oil pipe in Alabama - Image via Colonial Pipeline

The world is a global marketplace. A bankruptcy in Asia can cause the cost of goods to increase in Indianapolis. A leaking oil pipe in Alabama can cause fuel shortages and governors to declare states of emergency in six states.

“The key to keep in mind is that anything can happen,” said Kaylee Chen, a peer mentor at the University of Utah Personal Money Management Center, in an e-mail. Add, “anywhere.”

“Therefore, always prepare for any possible emergency,” she said.

Start by building long-term food storage. And don’t be afraid to use it when you need it.

Early in 2015, avian influenza affected more than 35 million egg-laying hens, or 12 percent of the domestic population, according to a June 22, 2015 blog from the American Egg Board.

The USDA’s Egg Market News Report said for the week of June 22, 2015 a dozen large eggs sold for a $2.35 national average. The average price over the previous three years, for the same week, was about 95 cents.

Kayleen Chen, a peer mentor at the University of Utah’s Personal Money Management Center, suggested the 50/30/20 rule. Fifty percent of a paycheck should go toward fixed expenses, like house payments and utilities. Discretionary expenses that can be adjusted, like grocery bills and fuel, should take up about 30 percent. Twenty percent should go toward short-term savings, an emergency fund and retirement.

The short-term savings fund is for future expenses like holidays or a down payment. An emergency fund helps when things come up like car repairs or doctor bills, to avoid paying for them with high-interest debt like credit cards or short-term loans.

“The reality is that women live longer and make less income than men,” she said.

Third, get out of debt. Interest never stops, even when you’re struggling.

Consider learning additional skills that can translate into side jobs for additional income or to help get out of debt. Chen used the example of a piano teacher. She also encouraged a budget or lifestyle change. Peter Dunn, a financial columnist for USA Today, suggested decreasing spending by 10 to 15 percent over time.

Personal finance collapses like job loss, divorce, medical emergencies and retirement are far more common than a major shipping company’s collapse. Creating a long-term food storage, getting out of debt and saving can reduce their impact.

When it comes to preparing for disasters, emergency kits are usually one of the first things people think of. But what about financial preparedness? Sure, being prepared with food, gear, and other necessities is important, but a lot of times, financial preparedness is forgotten. Having a financial first aid kit can bring immediate relief during a financial crisis, much like an emergency kit built for disasters can alleviate issues following natural upheavals.

Why have a financial first aid kit? Well, for starters, emergencies don’t suddenly negate your responsibility to paying bills. How you get that money could very well come from the contents of your financial first aid kid.

Not sure what to put in a financial first aid kit? Check out the official Emergency Financial First Aid Kit checklists and forms from FEMA. For an abbreviated version, keep reading.

Household Identification

Having proper identification for everyone living in your household (you, spouse, children, etc.) can provide proof when proof is needed. Photo ID such as a copy of a driver’s license or other ID should work. Especially important for children is to have their birth certificate safe in this emergency kit, to prove to any authorities that you are indeed the parent. Social security cards, military service and pet ID tags are also a good idea to keep in this kit.

Having all your household identification documents in one place can help provide proof of household members, maintain or re-establish contact with family members and employers, and even apply for FEMA disaster assistance.

Financial and Legal Documents

Being able to continue making payment and credit during an emergency is crucial. Certain documents containing housing payments, insurance policies, sources if income, and tax statements are important to have for many reasons. Identifying financial obligations will be much easier with these documents, and you’ll be less likely to forget about something that needs to be paid. Such documents will also help re-establish financial accounts, provide contact information for financial and legal providers, and of course, apply for FEMA disaster assistance.

Medical Information

Health insurance cards are a must. In the event of a disaster or other emergency, injury is much more likely, and health insurance cards can help you get the medical attention you need. Your physician information and immunization records will also provide doctors with your current medical situation and the information they need to provide proper medical care. Also, if you are currently receiving medical care, this information can ensure it continues uninterrupted.

Household Contacts

Your contacts are likewise important. Know who to talk to at your bank, as well as how to contact them. Other people to have contact information for would be your insurance agent, health professionals, and service providers. This information will allow you to begin recovery quickly, including contacting utilities about outages and restoration, insurance, and other aspects of recovery.

Emergency Money

If there’s an extended power outage, ATMs may not work and banks may be closed. Credit and debit cards will likewise be useless. If this is the case, acquiring money for, well, anything could be all but impossible. It’s recommended to have at least $100 in cash on hand. Make sure your cash is also separated into small bills. During an emergency, people may not have change, in which case a $2.00 bottle of water could cost you $20 or more, depending on your smallest bill denomination. $20 bills should be your highest value, with ones, fives, and tens mixed in.

Can you quickly come up with $1,000 for an emergency – without resorting to borrowing? Two-thirds of Americans would struggle to do so, according to an Associated Press poll released May 18, 2016. This includes almost 40 percent of households earning more than $100,000.

A short-term savings is a vital tool in an emergency preparedness kit. One study by the Urban Institute found people with a small amount of non-retirement savings – $250 to $750 – were less likely to be evicted from their homes or need public benefits, according to an AP story.

It’s possible to save $1,000. Here are some ways to do it.

First, make a budget. The easiest way is to look at what you spent last month in various categories and input those numbers. Many budgeting programs will do that for you. One free program is Calendar Budget.

“I have been using [Calendar Budget] for 5 months and I love it,” Shelly Robertson, of American Fork, Utah, wrote in an e-mail.

Remember also to set aside money for occasional expenses like holidays and car registration fees.

“You’ll tighten the budget before you are forced to tighten the budget,” he said.

Financial planner Dave Ramsey had some suggestions for immediate cuts: Get rid of cable or satellite TV. Make coffee at home. Reduce dining out and entertainment expenses. Lower the thermostat during the winter and raise it during the summer. Other ideas include shopping around to get the best rate on insurance and cell phone plans.

Kayleen Chen, a peer mentor at the University of Utah’s Personal Money Management Center, suggested the 50/30/20 rule. Fifty percent of a paycheck should go toward fixed expenses, like house payments and utilities. Discretionary expenses, like groceries, should take up about 30 percent. Twenty percent should go toward short-term savings, an emergency fund, and retirement.

Second, look for ways to earn additional money. This is especially useful for those of us whose fixed expenses take up waaay more than 50 percent of our income.

“Learn new skills that could be turned into a small job such as a piano teacher,” Chen wrote in an e-mail.

Third, deduct savings first.

“If we have automatic deduction … we save automatically. Then we live on what’s in the checking account,” said Ann House, coordinator of the Personal Money Management Center at the University of Utah. “I know if I keep extra money in my checking account, I will spend it until it’s gone.”

Fourth, stash cash.

Whenever possible, I pay with cash. Then, when I get home, I stash the small bills, like $1’s and $5’s, into an emergency fund. House suggested keeping up to $1,000 in cash in small bills in a 72-hour kit.

Years ago, my family had just finished moving when a record Colorado snowstorm stranded us in our home. We had no snow shovel, so a young man offered to dig us out. We ended up paying him an exorbitant amount for a half-hour’s work because we only had large bills on hand.